ACIT CIR 22(1), NAVI MUMBAI vs. NAVSHAKTI SECURITY FORCE, MUMBAI

This is an appeal filed by the revenue challenging the order of ld.CIT(A) - 8, Mumbai dated 26.8.2014 for the assessment year 2011-12.

Despite service of notice through RPAD none appeared on behalf of the assessee. We, therefore, proceed to decide the appeal ex-parte on merit after hearing the ld. DR. 2 3. Facts of the case are that the assessee filed e-return on 30.9.2011 declaring a total income of Rs.85,69,660/- which was processed under section 143(1) of the Income Tax Act, 1961. Thereafter the case was selected for scrutiny and statutory notices under section 143(2) and 142(1) of the Act were issued and served upon the assessee. The assessee is a partnership firm and engaged in the business of providing security guards, vehicle escort, detective, fire protection and other related personalized security guard, personnel escorts/body guards, training of personnel, arranging training programme, security guards consultants on contract or on employment basis all over the India and providing security guards for corporate premises, factories, societies banks etc. During the year the assessee has shown net profit of Rs.1.30 crore on total turnover of Rs.19.6 crores which worked out to 6.66% including the income from other sources of Rs.6,46,043/-, uniform Rs.29,52,259/-, dividend of Rs.15,000/- and other deduction of Rs.5,56,346/- which totalled at Rs.41,78,648/-. The net profit after excluding the indirect incomes was calculated at Rs.4.47%. The assessee has major expenses under the head salary/wages which constitutes at 83.3% of the total turnover. The AO on comparison of the current year result with the AY 2009-10 found that the assessee has shown a net profit 4.91% on the turnover of Rs.6.75 crores and accordingly estimated the net profit at 7% and thus net profit of Rs.66,77,791/- as against Rs.33,20,078/-, which was not appealed by the assessee and thus 3 attained finality. Similarly, in the current year, the AO estimated the net profit at the rate of 7% after rejecting the books of account u/s 145(3) of the Act which worked out to Rs.1,37,54,316/-. The net profit after reducing the various credits in the profit and loss account and the amount of profit shown by the assessee worked out at Rs.48,45,555/- which was added to the income of the assessee in the assessment framed by the AO vide order dated 4.2.2014 passed under section 143(3) of the Act assessing the income at Rs.1,34,19,950/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority who after considering the submissions of the assessee and discussing the matter in the light of various case laws as referred by the ld.CIT(A) in the appellate order allowed the appeal of the assessee by observing as under : “4.10 Following principles emerge from these judicial rulings:- i) A clear finding is necessary before invoking the Section 145(3) of the Act. It is also the duty of the Assessing Officer to bring on record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of we accounts of the assessee or the method of accounting employed by it. ii) Rejection of books of accounts cannot be sustained merely on the fact that the gross profit of the assessee is low during the relevant period as compared to book results of other years. Similarly, the system of accounting adopted by the assessee cannot be rejected merely on the ground that the gross profits disclosed by his books were low as compared unfavourably with those of others in same line of business. It is a well settled position of law that while making the assessment, the account books for that year have alone to be considered, as each assessment year is independent.

We have heard the contentions of the ld.DR and perused the material placed before us including the orders of authorities below. We find that while passing the assessment order the AO has not pointed out any specific defect or any discrepancy justifying the rejection of books of account under section 145(3) of the Act. In our opinion, the books of account maintained by the assessee could be rejected only if the AO is not in a position to calculate the income of the assessee on the basis of books of account maintained by the assessee qua the business carried out by it. The AO has simply relied on the basis of assessment order for the assessment year 2009-10 where the AO estimated the net profit of the assessee at 7% and the matter was not appealed against and thus attained finality. From the facts before us, we also note that there are very huge difference between the figures of income and expenses of the current year vis a vis preceding year. We also find that the ld. CIT(A) has considered the issue in depths on merit and recorded the finding of facts that rejection of books 5 of account and estimation of net profit was not proper and reversed the same by passing the detailed and reasoned order which in our opinion does not suffer from any infirmity in the eyes of law and deserved to be upheld. Accordingly, we uphold the order of the ld. CIT(A) by dismissing the appeal of the Revenue.